Swedish buy-now-pay-later pioneer Klarna began testing a debit card in the United States, marking its most direct challenge yet to traditional banking institutions. The Stockholm-based fintech company announced Tuesday it has partnered with Visa to offer consumers both immediate payment options and interest-free installment plans for purchases made online and in physical stores.
What to Know:
- Klarna is piloting a new debit card in the US through a partnership with Visa before expanding to Europe later this year
- The company paused its second attempt at a US IPO in April due to market volatility from tariffs
- The card will be issued by Utah-based WebBank since Klarna lacks a US banking license, with plans for three color options and tiered pricing
Klarna Expands Beyond Digital Payments
The debit card pilot represents a significant evolution for Klarna, which built its reputation on digital payment solutions. The company serves over 100 million global active users but has faced mounting pressure to diversify its revenue streams beyond traditional buy-now-pay-later services.
Unlike traditional debit cards that directly access customer bank accounts, Klarna's offering allows users to choose between immediate payment or splitting purchases into interest-free installments. This hybrid approach positions the company to compete more directly with established banks while maintaining its signature flexible payment model.
The timing of this launch coincides with broader regulatory scrutiny of the buy-now-pay-later industry. New standards were introduced last month amid concerns that lack of regulation has led some of the 10 million people who use BNPL services to take on too much debt.
WebBank will handle the card issuance and balance account management, circumventing Klarna's lack of a US banking license. The physical cards will come in aubergine, black, and bright green colors, with one free tier and two paid options offering different discount and cashback rates.
Market Disruption Accelerates Across Fintech Sector
Klarna's debit card launch occurs amid heightened activity in the fintech payments space. London-based competitor Zilch announced its first physical payment card through a new partnership with Visa just days before Klarna's announcement, switching from its previous Mastercard arrangement. Zilch says it has amassed five million customers in five years and will offer the physical card to complement its existing virtual card services.
US fintech Mercury, which serves over 100,000 startups, expanded into consumer banking in 2024 with Mercury Personal, targeting entrepreneurs and investors with high-yield savings accounts and custom debit cards. The service charges a $240 annual subscription fee and offers features like customizable debit card limits, worldwide ATM fee reimbursements, and up to $5 million in FDIC insurance coverage.
These developments reflect broader trends transforming the payments landscape. According to research from Rivel, more Gen Zers are expected to open new credit card accounts in 2025 than any other generation, with 84 percent of 22- to 24-year-olds having a general-purpose credit card during the fourth quarter of 2023.
The competitive pressure extends beyond established players. Industry analysis suggests corporate payments are accelerating their digital transformation, with virtual cards creating automated reconciliation that cuts down on human error while offering companies real-time data insights. For small businesses, the total market for embedded finance could be worth up to $124 billion in 2025.
IPO Plans Stalled Amid Market Volatility
Klarna's debit card launch comes as the company navigates uncertain public market conditions. The fintech postponed its US initial public offering plans for the second time in recent years, citing market disruption from President Donald Trump's tariff policies.
This delay reflects broader challenges facing fintech companies seeking public listings. Many have struggled with profitability concerns and regulatory uncertainties that have made investors more cautious about high-growth, loss-making technology companies.
The company's expansion into traditional banking products suggests management is focused on building sustainable revenue streams while waiting for more favorable market conditions. By offering debit cards alongside its core buy-now-pay-later services, Klarna aims to increase customer engagement and transaction frequency.
Industry observers note that successful fintech companies increasingly need multiple revenue sources to achieve long-term viability. The shift toward comprehensive financial services platforms, rather than single-product offerings, has become a common strategy among leading players.
Regulatory Landscape Shapes Industry Direction
The broader buy-now-pay-later industry faces evolving regulatory frameworks that could impact growth trajectories. Consumer protection agencies have expressed concerns about the potential for users to accumulate unsustainable debt across multiple platforms.
Klarna's partnership with established financial institutions like Visa and WebBank demonstrates the company's commitment to operating within regulatory guidelines. This approach contrasts with some fintech startups that have faced enforcement actions for compliance failures.
The collaboration also provides Klarna access to Visa's global payment infrastructure without requiring significant capital investment in proprietary systems. This partnership model has become increasingly common as fintech companies seek to scale rapidly while maintaining regulatory compliance.
Market analysts expect continued consolidation and partnership activity as companies balance innovation with regulatory requirements. The most successful players will likely be those that can navigate complex compliance landscapes while delivering compelling user experiences.
Closing Thoughts
Klarna's US debit card pilot represents a strategic evolution from pure buy-now-pay-later services toward comprehensive banking competition. The company's partnership approach with Visa and WebBank provides a pathway to challenge traditional financial institutions while maintaining regulatory compliance, though success will depend on consumer adoption and favorable market conditions for an eventual public offering.